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By: Brendan Gilmartin, VP Research & Content

Walt Disney (NYSE:DIS) is scheduled to report 2Q 2013 earnings after the closing bell on Tuesday, May 7. The release will be followed with a conference call at 5:00 p.m. EST. The media and entertainment giant is also a member of the Dow Jones Industrial Average and could therefore influence direction of the index futures and other broad market gauges.

Outliers & Strategy

  • Walt Disney is expected to earn $0.76 per share (range is $0.69 to $0.82), up from $0.58 a year ago, while revenues are forecast to come in at $10.48 billion, up 8.9% from the prior year. (Source: Yahoo! Finance)
  • Following the 30.15% YTD run-up, Walt Disney shares are now trading at 21.0x trailing earnings, a premium to the 5-year average of 15.2x. With valuation at these levels and the shares just at a 52-week high of $65.09, Walt Disney is vulnerable to even the slightest misstep. Therefore, look for EPS and Revenues to come in at the high end of the Street's forecasts in order to sustain the uptrend, particularly in light of the overwhelmingly positive sell-side sentiment (see Recent News below).
  • At current levels, the options market is pricing in a 3.4% move off earnings when it reports on Tuesday.

Recent News

  • 05/06: Deutsche Bank raised its price target on Walt Disney from $63.00 to $75.00 in anticipation of a strong 2Q earnings release, according to a report on StreetInsider.com. The firm expects the company to surpass its estimate of $0.76 per share.
  • 05/02: Goldman Sachs reportedly told clients that Walt Disney shares can climb higher from current levels and recommended the purchase of Call options in the stock, according to a post on Barron's Online. The same report also showed that investors are warming up to Disney in response to several upcoming films, including Iron Man 3.
  • 04/29: UBS upgraded Walt Disney from Neutral to Buy and raised the price target from $55 to $72, according to Barron's Online. The firm cited return of capital to shareholders, upgrades at its parks, and recent acquisitions for the bullish outlook.


Technical Review

Walt Disney shares are up more than 30% YTD, well outpacing the broader market, en route to an all-time high ahead. With the shares at these levels ahead of 2Q results, the Street is looking for earnings and revenues at the high end of estimates to push the shares even highs. The Relative Strength Index (RSI) is now at 75, well above the 70-level that indicates an overbought scenario. Should results disappoint, look for support at $62.00, with downside risk to $60.00 in the event that results miss estimates. (Chart courtesy of StockCharts.com)

(click to enlarge)Summary

Walt Disney shares are at all-time highs in anticipation of a solid 2Q 2013 earnings release. The media and entertainment giant is seen benefiting from solid performance at its parks, a strong showing at the entertainment division and the unveiling several new movies expected to drive box office results. Against this positive backdrop, the shares are now trading at a hefty 21x earnings, well above the average historical multiple (~15x), suggesting the Street is looking for earnings at the high end of consensus forecasts (EPS Ex-Items Est. is $0.76; High number on the Street is $0.82) on a stronger than expected revenue figure. Anything less may be seen as a disappointment, considering the recent market strength and technical overbought scena

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.